Immigration as a Trade Facilitator: A Review and New Insights

This paper uses a global sample of 196 countries that trade goods with 30 OECD countries to estimate the short- and long-run effects of immigration on export and import flows. Methodologically, it employs a gravity model of trade augmented with bilateral immigration stocks, applied to panel data covering the period between 1995 and 2023. The study’s main innovation lies in the utilisation of recent advancements in the gravity model, aimed at controlling not only for time-invariant bilateral heterogeneity, but also for multilateral resistances. The main empirical strategy employed is a control-function approach to address the endogeneity of the migration variable. In the first stage, a bilateral migration model is estimated incorporating, as external instruments, a proxy for migration regularisation policies interacted with the initial stock of migrants, and the migration rate of the countries in the region of origin. In the second stage, the main equation—a gravity model of the migration–trade link—is estimated, including the residual obtained from the first stage. We consistently find statistically significant effects of migration on imports, whereas the effects on exports are smaller in magnitude and statistically significant only in the long-term.